Tesco's 2022 Transformation: How New Strategies and Financial Growth Are Shaping the Future of Retail

Tesco turned the pages on a new chapter in 2022. With new strategic priorities and purpose, Tesco strives to build on its existing work and be even more competitive moving forward. The three focus areas for Tesco as it moves to this new chapter are understanding its strengths, how the market is changing, and what can be done to improve customers' lives.

Tesco's Key Strategic Priorities

Creating Magnetic Value: Tesco's Customer-Centric Business Strategy

One of the strategic priorities for Tesco is to create “magnetic value for customers.” This strategy encompasses creating a combination of quality, price, range, and customer experience. The goal is to offer reliable value that eliminates customers’ need for alternative shopping options while providing positive reasons to shop more with Tesco. Hence, it doesn’t come as a surprise that the company has been voted Britain’s Favorite Supermarket for seven years consecutively by customers.

Leveraging Clubcards: Tesco's Approach to Personalized Shopping

Another one of the strategic priorities revolves around Tesco Clubcards, which can be used to leverage insights to make the customer shopping experience more relevant and personalized. This plays an important role in the retail sector, which is now moving towards automation with AI based personalization. More than 20 million households now own Clubcard, which, when combined with the online grocery business, its nine million regular users, and dunnhumby’s capabilities, allows Tesco to bring additional value and improve loyalty. 

'Save to Invest': Tesco's Strategy for Inflation Offset and Investment

‘Save to invest’ is another one of the key strategic priorities for Tesco. The company aims to be as simple, productive, and agile as possible to offset inflationary pressures and invest in its redefined strategic priorities. “We want to make sure we only spend money where it adds value for customers and, in total, we are aiming for around £1bn [$1.2 billion] of savings across a range of areas over the next three years,” said Murphy. 

Tesco's Financial Performance

Tesco’s group sales accounted for $65.8 billion, 3% up from $64.1 billion in 2021. This 3% rise was primarily due to continued growth in the United Kingdom and double-digit growth at Booker. 

Like-for-like sales increased by 8.2% over the previous two years, with growth in both stores and online, as well as in food and non-food categories. Average basket sizes remained higher than pre-pandemic levels across the business, partially offset by lesser shopping trips. 

The adjusting operating margin improved by 94 basis points compared to last year. One of the primary contributors to the U.K.’s strong business growth was high-margin clothing sales, which also included an increase in total price sales to 86% from 77% last year. Tesco’s relentless focus on ensuring customer satisfaction resulted in the company consistently outperforming throughout the year against the market. Tesco’s market share in the U.K. reached its highest level over four years. This increase in market share was both in terms of volume and value, with the former slightly ahead of the latter due to Tesco’s efforts to minimize the impact of inflation as much as possible on its customers. 

 “To be convenient now means serving customers wherever, whenever and however they want to be served. We believe we can do that better than anyone by leveraging our existing reach and strong network,” said Tesco’s Group Chief Executive Officer, Ken Murphy. “We will continue to adapt while at the same time seeking capital-light growth opportunities in the two key growth channels of online and convenience.”

As the pandemic eased and customers chose to return to in-store shopping, online like-for-like sales decreased by 6.5% in the last year. However, the online sales contribution was still nearly 14% throughout the year, with the first quarter observing a peak of 15.5%. Additionally, there has been a 5% increase in online sales contribution compared to the pre-pandemic levels. Tesco has increased online sales by $2.8 billion and fulfilled over 1.2 million customer orders per week, up from 0.7 million pre-pandemic.